Retirement or your kid's college first? The order that costs you less

Should I save for retirement or kids college?

Whether to save for kids college or retirement first is all over the Reddit parenting threads, and a lot of the replies are opinions with no numbers attached. So we ran it.

Same house baseline we use everywhere: $150 a month, deposited at the end of each month, 7% a year compounded monthly, no fees, no inflation. 1 dad, age 30 when the kid is born. The $150 runs for 18 years and then stops.

Then we split that same $150 5 different ways and checked 2 dates: the kid's 18th birthday, and the dad's 65th.

The headline result is not close. Whether the dad has an employer match is the variable that moves the answer more than anything else on this page.

What does $150 a month become in each order?

Here are the 5 orders, side by side. Every number came out of the same script, at the same 7%.

Read the second and third rows again. Without a match, the 401(k) and the 529 grow to the exact same $64,608 by 18. Same deposit, same rate, same result.

The match is the only thing in the table that changes the pile. $150 from the dad plus $75 from the employer is $225 a month going in, and $225 grows 1.5x as big as $150 every time, at any rate.

The split row is the hedge. It puts $32,304 toward college and $48,456 toward retirement by the kid's 18th, which is $80,760 in total, compared to $64,608 for the all-529 order.

The 65 column is where the gap gets loud. The money in the 401(k) keeps compounding for 17 more years after the kid leaves. The 529 money got spent on a dorm with a mini fridge.

The 401(k) rows still owe college. If the 529 dad saved the $857 a month the 401(k) dad spends on a Parent PLUS loan from 48 to 58, fee included, he would have about $241,816 at 65. The match still wins, by about $75,643.

That comparison leaves out taxes. The 401(k) balance is pre-tax, so income tax comes off it at withdrawal, and the 529 money was tax free for college. Neither side is taxed in our table, which flatters the 401(k) rows.

Can I save for retirement and college at the same time?

Yes, and the split row in the table is what that looks like. $75 a month to the 529 and $75 to a matched 401(k) leaves $32,304 for college and $48,456 in retirement when the kid turns 18. That is $80,760 in total by the kid's 18th, against $64,608 for the all-529 order.

At 65, the 401(k) half of the split grows to $158,729. The all-matched order reaches $317,459, so the split gives up $158,730 of retirement to put $32,304 toward college.

Same caveat as the full 401(k) rows. The $48,456 is pre-tax and locked for retirement, and the $32,304 in the 529 covers half of what the all-529 order would. The rest of college still has to come from income, aid or loans.

Why is the employer match the number that decides it?

A 50% match is a 50% return on the day the money goes in, before the market does anything. No 529, index fund or savings account on earth pays that.

We assumed the classic setup: the employer adds 50 cents for each $1 the dad puts in, up to a cap the plan sets. We also assumed the full $150 sits inside that cap. If the dad already contributes enough to get the full match, the extra $150 earns no match, and the 401(k) row drops back to the no-match row.

Over 18 years, the match alone is $16,200 of deposits. At 65, the matched order holds $317,459 and the unmatched order holds $211,639. That $105,820 difference is what skipping the match costs, in our scenario, by retirement.

Every match has its own formula and vesting schedule, and those live in the plan documents, not on this page. The cap is the line that matters. Money above it is a different comparison.

Do retirement accounts count on the FAFSA?

No. Federal Student Aid's 2026-27 handbook says the value of 401(k) plans, pensions, annuities, noneducation IRAs and Keogh plans "is not counted as an asset." The catch is in the same sentence: distributions do count as income.

A 529 owned by a parent is a different story. The 2027-28 Student Aid Index guide, published June 2026, lists "qualified education benefits" in the parent's net worth line, then multiplies what is left by a 12% asset conversion rate. That amount flows into parent available income, which is assessed at 22% to 47%.

12% times 47% is 5.64%. 12% times 22% is 2.64%. So each $1 in a parent 529 can raise the Student Aid Index by up to 5.64 cents. The 2027-28 asset protection allowance is $0 for parents at every age, so nothing shields it.

In our all-529 order, $64,608 at the top rate adds up to $3,644 to the SAI on the first FAFSA. At the bottom rate it adds $1,706. The $96,912 in the matched 401(k) adds $0.

We worked the full FAFSA treatment, grandparent 529s included, in our 529 and FAFSA breakdown. Short version: a parent 529 is the friendliest way to hold college money, and a 401(k) is not college money at all, as far as the form is concerned.

Can you borrow for college but not for retirement?

Yes. There is a federal loan program for college. No loan program builds a retirement for you.

Here is what the Department of Education lets a family borrow, under the rules that took effect July 1, 2026.

Over 4 years, the student's own federal limit is $5,500 plus $6,500 plus $7,500 plus $7,500, which is $27,000. The Parent PLUS cap is new for 2026. FSA's own FAQ says it applies per dependent student, not per parent, so 2 parents cannot each borrow $20,000 for the same kid.

Now put a price on it. If the all-401(k) dad borrowed the full $64,608 the 529 would have held, as a Parent PLUS loan at today's 9.07% paid over 10 years, the payment before the fee is $821 a month. Total paid before the fee is $98,505, which is $33,897 in interest. Add the 4.228% PLUS loan fee and he has to borrow $67,460 to net $64,608. That pushes the payment to $857 and the total cost to $38,246, about $4,349 more.

The 401(k) dad pays $857 a month for 10 years, fee included. The 529 dad would need $814 a month for 17 years to catch up. The match is why the 401(k) side comes out ahead.

Without a match, the borrowing math runs the other way. The loan interest is a pure cost, and nothing on the 401(k) side pays for it.

Can a parent's Roth IRA pay for college?

It can, and that is the reason the Roth IRA row is in the table at all. It is the 1 account here that sits on the retirement side of the FAFSA and still has a door to college.

IRS Publication 590-B sets the order money leaves a Roth IRA: regular contributions first, then conversions and rollovers, then earnings. Returning your own regular contributions is not included in income.

In our Roth order, the dad put in $32,400 over 18 years ($150 times 216 months). The account holds $64,608 at the kid's 18th. That means $32,400 can come out with no tax and no 10% penalty, and the other $32,208 is earnings.

The earnings have their own rule. The IRS's early distribution exceptions list "qualified higher education expenses" as an exception to the 10% additional tax for IRAs. Income tax can still apply to the earnings. The same IRS table marks that exception "no" for 401(k)s and other qualified plans.

2 limits keep this from being a free lunch. The 2026 IRA cap is $7,500 a year, and Roth contributions phase out between $242,000 and $252,000 of income for married couples filing jointly. And a Roth withdrawal shows up as untaxed IRA income on the FAFSA filed 2 years later, because the FAFSA reads prior-prior year tax returns. FSA counts retirement distributions as income even though it ignores the balance.

We covered the kid's own Roth, which is a different account with different rules, in custodial Roth IRA vs 529.

What does a 529 do that a 401(k) cannot?

Taxes, mainly. A 529 is after-tax money going in, and IRS Publication 970 says no tax is due on a distribution unless it is bigger than the student's adjusted qualified education expenses. The 401(k) in our table is a traditional, pre-tax 401(k). It went in before tax and comes out taxed as income.

That cuts in both directions, and our table ignores both on purpose. The 401(k) dad got a tax break on the way in that the 529 dad did not. The 529 dad gets a tax break on the way out that the 401(k) dad does not. Which 1 is bigger depends on his tax bracket now versus at 65, and that is a number we do not have.

The 529 also has a state angle. Some states give a tax deduction for contributions, which we priced in the state 529 deduction breakdown. A deduction is a return on day 1, the same way a match is. It is worth the deduction times the state tax rate, which is a long way from 50%.

Where the 529 wins clean is the no-match case. If the dad has no match, or has already maxed it, the 401(k) and the 529 grow to the same number in our table. At that point the 529 brings tax-free college withdrawals, and the 401(k) brings a balance the FAFSA cannot see. Those are 2 different advantages, and the math does not crown either 1.

How much do parents save for kids college?

The best recent national number is from a survey, not a government source, so treat it as a survey. The How America Pays for College 2026 report from Sallie (Sallie Mae), run with Ipsos on 1,000 parents and 1,000 undergrads in April and May 2026, found families spent an average of $34,019 on college in the 2025-26 school year.

Parent income and savings covered 39% of that, or $13,087 on average. Parent borrowing covered 11%, or $3,734. 73% of families drew from parent income and savings, and 22% leaned on parent borrowing.

Note that Sallie is a student lender, so it has skin in the borrowing column. The survey also measures what parents paid in a year, not what they saved before the kid started. The 2 are related but not the same number.

For a sense of scale, the all-529 order in our table ($64,608 at 18) would cover about 4.9 years of that $13,087 parent share, if costs held still. They will not. The point is that $150 a month from birth is a real number against what parents are paying, not a token.

What if I'm not saving for my kids college at all?

Then the dad in our all-401(k) row is the closest match, and his kid is not out of options. Federal loans exist. The student's own federal limit of $27,000 over 4 years is set by law.

Grants and scholarships covered 27% of college spending in the same Sallie Mae survey. And the dad who skipped the 529 is the dad whose FAFSA shows no parent 529 at all.

We are not going to pretend this is free. Borrowed college costs real interest, as the $33,897 line above shows. Federal limits cap what can be borrowed: $27,000 for the student plus $65,000 in Parent PLUS loans per kid. Nothing lends against a retirement shortfall at 65.

If the gap is time, not intent, the dollar-a-day math shows what starting later costs at every age, and it is less brutal than it sounds.

What if the market returns 5% or 9% instead of 7%?

The order of the rows does not change. We reran every scenario at 5% and 9%.

At every rate, the matched 401(k) holds 1.5x the 529 at the kid's 18. At 5% the gap is $26,190. At 9% it is $40,226. The rate changes how big the numbers get, never which row is on top.

Of course 7% is an average and the market does not send a memo about which years it plans to skip. The same 7% applies to both sides here, so a bad decade hurts the 529 and the 401(k) equally.

Rules current as of Oct 2026: 2026 401(k) limit $24,500, IRA limit $7,500, Roth phase-out $242,000 to $252,000 married filing jointly, 2027-28 parent asset conversion rate 12% with AAI rates of 22% to 47%, Parent PLUS limit $20,000 a year and $65,000 total, 2026-27 loan rates 6.52% undergrad and 9.07% Parent PLUS, PLUS loan fee 4.228%. Rates and limits move, so check the date on this line before you lean on it.